Thursday, June 11, 2009

A journey into a place in cyberspace where thousands of people have imaginary lives. Some even make a good living. Big advertisers are taking notice

As I step onto the polished wood floor of the peaceful Chinese country house, a fountain gurgles softly and a light breeze stirs the scarlet curtain in a doorway. Clad in a stylish blue-and-purple dress, Anshe Chung waves me to a low seat at a table set with bowls of white rice and cups of green tea. I'm here to ask her about her booming land development business, which she has built from nothing two years ago to an operation of 17 people around the world today. As we chat, her story sounds like a classic tale of entrepreneurship.

Except I've left out one small detail: Chung's land, her beautifully appointed home, the steam rising from the teacups -- they don't exist. Or rather, they exist only as pixels dancing on the computer screens of people who inhabit the online virtual world called Second Life. Anshe Chung is an avatar, or onscreen graphic character, created by a Chinese-born language teacher living near Frankfurt, Germany. And the sitting room in which Chung and my avatar exchange text messages is just one scene in a vast online diorama operated by Second Life's creator, Linden Lab of San Francisco. Participants launch Second Life's software on their personal computers, log in, and then use their mice and keyboards to roam endless landscapes and cityscapes, chat with friends, create virtual homes on plots of imaginary land, and conduct real business.

REAL BUCKS The avatar named Anshe Chung may be a computerized chimera, but the company she represents is far from imaginary. Second Life participants pay "Linden dollars," the game's currency, to rent or buy virtual homesteads from Chung so they have a place to build and show off their creations. But players can convert that play money into U.S. dollars, at about 300 to the real dollar, by using their credit card at online currency exchanges. Chung's firm now has virtual land and currency holdings worth about $250,000 in real U.S. greenbacks. To handle rampant growth, she just opened a 10-person studio and office in Wuhan, China. Says Chung's owner, who prefers to keep her real name private to deter real-life intrusions: "This virtual role-playing economy is so strong that it now has to import skill and services from the real-world economy."

Oh yes, this is seriously weird. Even Chung sometimes thinks she tumbled down the rabbit hole. But by the time I visited her simulated abode in late February, I already knew that something a lot stranger than fiction was unfolding, some unholy offspring of the movie The Matrix, the social networking site MySpace.com (NWS ), and the online marketplace eBay (EBAY ). And it was growing like crazy, from 20,000 people a year ago to 170,000 today. I knew I had to dive in myself to understand what was going on here.

As it turns out, Second Life is one of the many so-called massively multiplayer online games that are booming in popularity these days. Because thousands of people can play at once, they're fundamentally different from traditional computer games in which one or two people play on one PC. In these games, typified by the current No. 1 seller, World of Warcraft, from Vivendi Universal's (V ) Blizzard Entertainment unit, players are actors such as warriors, miners, or hunters in an endless medieval-style quest for virtual gold and power.

All told, at least 10 million people pay $15 and up a month to play these games, and maybe 20 million more log in once in a while. Some players call World of Warcraft "the new golf," as young colleagues and business partners gather online to slay orcs instead of gathering on the green to hack away at little white balls. Says eBay Inc. founder and Chairman Pierre M. Omidyar, whose investing group, Omidyar Network, is a Linden Lab backer: "This generation that grew up on video games is blurring the lines between games and real life."

Second Life hurls all this to the extreme end of the playing field. In fact, it's a stretch to call it a game because the residents, as players prefer to be called, create everything. Unlike in other virtual worlds, Second Life's technology lets people create objects like clothes or storefronts from scratch, LEGO-style, rather than simply pluck avatar outfits or ready-made buildings from a menu. That means residents can build anything they can imagine, from notary services to candles that burn down to pools of wax.

PROPERTY RIGHTS You might wonder, as I did at first, what's the point? Well, for one, it's no less real a form of entertainment or personal fulfillment than, say, playing a video game, collecting matchbook covers, or building a life list of birds you've seen. The growing appeal also reflects a new model for media entertainment that the Web first kicked off: Don't just watch -- do something. "They all feel like they're creating a new world, which they are," says Linden Lab Chief Executive Philip Rosedale.

Besides, in one important way, this virtual stuff isn't imaginary at all. In November, 2003, Linden Lab made a policy change unprecedented in online games: It allowed Second Life residents to retain full ownership of their virtual creations. The inception of property rights in the virtual world made for a thriving market economy. Programmer Nathan Keir in Australia, for example, created a game played by avatars inside Second Life that's so popular he licensed it to a publisher, who'll soon release it on video game players and cell phones. All that has caught real-world investors' attention, too. On Mar. 28, Linden Lab raised a second, $11 million round of private financing, including new investor Jeff Bezos, CEO of Amazon.com Inc (AMZN ).

Virtual worlds may end up playing an even more sweeping role -- as far more intuitive portals into the vast resources of the entire Internet than today's World Wide Web. Some tech thinkers suggest Second Life could even challenge Microsoft Corp.'s (MSFT ) Windows operating system as a way to more easily create entertainment and business software and services. "This is why I think Microsoft needs to pay deep attention to it," Robert Scoble, Microsoft's best-known blogger, recently wrote.

WEAK SPOT A lot of other real-world businesses are paying attention. That's because virtual worlds could transform the way they operate by providing a new template for getting work done, from training and collaboration to product design and marketing. The British branding firm Rivers Run Red is working with real-world fashion firms and media companies inside Second Life, where they're creating designs that can be viewed in all their 3D glory by colleagues anywhere in the world. A consortium of corporate training folks from Wal-Mart Stores (WMT ), American Express (AXP ), Intel (INTC ), and more than 200 other companies, organized by learning and technology think tank The MASIE Center in Saratoga Springs, N.Y., is experimenting inside Second Life with ways for companies to foster more collaborative learning methods. Says Intel Corp. learning consultant Brent T. Schlenker: "We're trying to get in on the front end of this new workforce that will be coming."

The more I kept hearing about all this, the more I knew this was wa-a-a-ay more than fun and games. So early this year I signed up at www.secondlife.com, downloaded the software, logged on, and created my persona. As reporter "Rob Cranes," I embarked on my journey.

And promptly got lost in the vast, uncharted terrain.

Click: I land at the Angry Ant, a nightclub holding a "Naked Hour" where avatars are in various stages of undress, dancing lasciviously. Is it getting warm in here?

Click: I stumble upon someone teaching a class on how to buy and sell virtual land to a motley crew of avatars sitting attentively on chairs watching PowerPoint slides. Do we get a toaster when we're done?

Click: Suddenly, I'm underwater at Cave Rua, watching a school of fish swim by. Cool, but what do I do here?

Click: Here's a virtual doctor's office, where a researcher runs a simulation of what it's like to be a hallucinatory schizophrenic. A menacing British voice from a TV urges: "Shoot yourself. Shoot them all. Get the gun out of the holster and shoot yourself, you !@#&!" Yikes, where's that teleport button?

My disorientation points up one of the big challenges of these virtual worlds, especially one so open-ended as Second Life: With nothing to shoot and no quest to fulfill, it's hard for newbies to know what to do. Virtual worlds require personal computers with fairly advanced graphics and broadband connections and users with some skill at software. "The tools are the weak spot," says Will Wright, legendary creator of The Sims video game, who nonetheless admires Second Life. For now, he says, "That limits its appeal to a fairly hard-core group."

Still, there's no denying the explosion of media, products, and services produced by users of these virtual worlds. IGE Ltd., an independent online gaming services firm, estimates that players spent about $1 billion in real money last year on virtual goods and services at all these games combined, and predicts that could rise to $1.5 billion this year. One brave (or crazy) player in the online game Project Entropia last fall paid $100,000 in real money for a virtual space station, from which he hopes to earn money charging other players rent and taxes. In January inside Second Life alone, people spent nearly $5 million in some 4.2 million transactions buying or selling clothes, buildings, and the like.

That can add up to serious change. Some 3,100 residents each earn a net profit on an average of $20,000 in annual revenues, and that's in real U.S. dollars. Consider the story of Chris Mead, aka "Craig Altman," on Second Life. We exchange text messages via our keyboards at his shop inside Second Life, where he hawks ready-made animation programs for avatars. It's a bit awkward, all the more so because as we chat, his avatar exchanges tender caresses with another avatar named "The Redoubtable Yoshimi Muromachi." Turns out she's merely an alter ego he uses to test his creations. Still, I can't help but make Rob Cranes look away.

SHOPPING SPREE Mead is a 35-year-old former factory worker in Norwich, England, who chose to stay home when he and his working wife had their third child. He got on Second Life for fun and soon began creating animations for couples: When two avatars click on a little ball in which he embeds the automated animation program, they dance or cuddle together. They take up to a month to create. But they're so popular, especially with women, that every day he sells more than 300 copies of them at $1 or less apiece. He hopes the $1,900 a week that he clears will help pay off his mortgage. "It's a dream come true, really," he says. "I still find it so hard to believe."

His story makes me want to venture further into this economy. Besides, my photo editor is nagging me to get a shot of my avatar, which needs an extreme makeover. Time to go shopping! First I pick out a Hawaiian shirt from a shop, clicking on the image to buy it for about 300 Lindens, or about a dollar. Nice design but too tight for my taste, so I prowl another men's shop for a jacket. I find something I like, along with a dark gray blazer and pants. As a fitting finishing touch for a reporter, I add a snazzy black fedora, though I'm bummed that it can't be modified to add a press card.

I'm also feeling neglectful leaving my avatar homeless every time I log out. It's time to buy some land, which will give me a place to put my purchases, like a cool spinning globe that one merchant offered cheap. And maybe I'll build a house there to show off to friends. I briefly consider buying a whole island, but I have a feeling our T&E folks would frown on a $1,250 bill for imaginary land. Instead, I purchase a 512-square-meter plot with ocean view, a steal for less than two bucks. Plopping my globe onto my plot, I take a seat on it and slowly circle, surveying my domain. My Second Life is good.

I soon discover that Second Life's economy has also begun to attract second-order businesses like financial types. One enterprising character, whose avatar is "Shaun Altman," has set up the Metaverse Stock Exchange inside Second Life. He (at least I think it's a he) hopes it will serve as a place where residents can invest in developers of big projects like virtual golf courses. In a text chat session in his slick Second Life office, Altman concedes that the market is "a bit ahead of its time. I'm sure it will take quite some time to build up a solid reputation as an institution." No doubt, I'm thinking, especially when the CEO is a furry avatar whose creator refuses to reveal his real name.

Premature or not, such efforts are raising tough questions. Virtual worlds may be games at their core, but what happens when they get linked with real money? (For one, people such as Chung's owner start to take changes to their world very seriously. She recently threatened to create her own currency inside Second Life after the Linden dollar's value fell.) Ultimately, who regulates their financial activities? And doesn't this all look like a great way for crooks or terrorists to launder money?

Beyond business, virtual worlds raise sticky social issues. Linden Lab has rules against offensive behavior in public, such as racial slurs or overtly sexual antics. But for better or worse, consenting adults in private areas can engage in sexual role-playing that, if performed in real life, would land them in jail. Will that draw fire from law enforcement or, at least, publicity-seeking politicians? Ultimately, what are the societal implications of spending so many hours playing, or even working, inside imaginary worlds? Nobody really has good answers yet.

My head hurts. I just want to have some fun now. It's time to try Second Life's most popular game. Tringo is a combination of bingo and the puzzle-like PC game Tetris, where you quickly try to fit various shapes that appear on a screen into squares, leaving as few empty squares as you can. I settle in on a floating seat, joining a dozen other competing avatars at an event called Tringo Money Madness @Icedragon's Playpen -- and proceed to lose every game. Badly. I start to get the hang of it and briefly consider waiting for the next Tringo event until I see the bonus feature: a movie screen showing the band Black Sabbath's 1998 reunion tour.

Instead, I seek out Tringo's creator, Nathan Keir, a 31-year-old programmer in Australia whose avatar is a green-and-purple gecko, "Kermitt Quirk." It turns out Keir's game is so popular, with 226 selling so far at 15,000 Lindens a pop, or about $50, that a real-world company called Donnerwood Media ponied up a licensing fee in the low five figures, plus royalties. Tringo soon will grace Nintendo Co.'s (NTDOY ) Game Boy Advance and cell phones. "I never expected it at all," Keir tells me, his awe evident even in a text chat clear across the world. He's working on new games now, wondering if he can carve out a living. That would be even cooler than the main benefit so far: making his mum proud.

TALENT BANK After all my travels around Second Life, it's becoming apparent that virtual worlds, most of all this one, tap into something very powerful: the talent and hard work of everyone inside. Residents spend a quarter of the time they're logged in, a total of nearly 23,000 hours a day, creating things that become part of the world, available to everyone else. It would take a paid 4,100-person software team to do all that, says Linden Lab. Assuming those programmers make about $100,000 a year, that would be $410 million worth of free work over a year. Think of it: The company charges customers anywhere from $6 to thousands of dollars a month for the privilege of doing most of the work. And make no mistake, this would be real work were it not so fun. In Star Wars Galaxies, some players take on the role of running a pharmaceutical business in which they manage factory schedules, devise ad campaigns, and hire other players to find raw materials -- all imaginary, of course.

All this has some companies mulling a wild idea: Why not use gaming's psychology, incentive systems, and social appeal to get real jobs done better and faster? "People are willing to do tedious, complex tasks within games," notes Nick Yee, a Stanford University graduate student in communications who has extensively studied online games. "What if we could tap into that brainpower?"

In other words, your next cubicle could well be inside a virtual world. That's the mission of a secretive Palo Alto (Calif.) startup, Seriosity, backed by venture firm Alloy Ventures Inc. Seriosity is exploring whether routine real-world responsibilities might be assigned to a custom online game. Workers having fun, after all, likely will be more productive. "We want to use the power of these games to transform information work," says Seriosity CEO Byron B. Reeves, a Stanford professor of communications.

BUILDING BOOM Whether or not their more fantastic possibilities pan out, it seems abundantly clear that virtual worlds offer a way of testing new ideas like this more freely than ever. "We can and should view synthetic worlds as essentially unregulated playgrounds for economic organization," notes Edward Castronova, an associate professor in telecommunications at Indiana University at Bloomington and author of the 2005 book Synthetic Worlds: The Business and Culture of Online Games.

I get a taste of the lack of regulation just as we're about to go to press. Logging in to Second Life after a few days off, I see that someone has erected a bunch of buildings on my avatar Rob Cranes's land, which is located in a region called Saeneul. The area was nearly empty when I arrived, but now I'm surrounded by Greek temples under construction. So much for my ocean view. Online notes left by one "Amy Stork" explain that the "Saeneul Residents Association" is building an amphitheater complex, and "your plot is smack bang in the middle." She's "confident that we can find a *much* better plot for you than this one....Love, Amy xx."

Oh, really? For some reason, this causes Rob Cranes to blow a gasket. He resists my editor's advice to "head to the virtual gun store," but he fires off angry e-mail complaints to Ms. Stork and Linden Lab and deletes the trespassing buildings, planting some trees in their place. Then he reconsiders: Maybe a ramshackle cabin with a stained sofa and a sun-bleached Chevy up on blocks would be a great addition to his plot.

At first, I wonder why I (or my avatar) has such a visceral reaction to this perceived intrusion. Then a flush of parental pride washes over me: My avatar, which so far has acted much like me, hanging back from crowds and minding his punctuation in text chats, suddenly is taking on a life of his own. Who will my alter ego turn out to be? I don't know yet. And maybe that's the best thing about virtual worlds. Unlike in the corporeal world, we can make of our second lives whatever we choose.

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About Me

I am an e-Money researcher and a Founding Director of the Bitcoin Foundation. My career has included senior influential posts at Sumitomo Bank, VISA, VeriSign, and Hushmail.

"Free-market protagonists, such as Matonis, regard cybercash as better than traditional government-issued or -regulated money, because it is determined by market forces and thus nonpolitical in nature." --Robert Guttmann, Professor of Economics at Hofstra University, in Cybercash: The Coming Era of Electronic Money, 2002

"Matonis is quite correct that the new technology makes easier the use of multiple private currencies." --Mark Bernkopf, Federal Reserve Bank of New York, in "Electronic Cash and Monetary Policy", 1996

"Matonis argues that what is about to happen in the world of money is nothing less than the birth of a new Knowledge Age industry: the development, issuance, and management of private currencies." --Seth Godin in Presenting Digital Cash, 1995